Bill would give bank a $300M benefit

A one-sentence bill worth $300 million to a bank owned by a politically connected family that has doled out hundreds of thousands of dollars in campaign donations is about to get a big push forward.

Set to be approved by the House Financial Services Committee on Thursday, the legislation would help Emigrant Savings Bank of New York sidestep a costly mandate of the Dodd-Frank financial reform law. No other bank in the country would be affected.

Story Continued Below

The bill was introduced by Rep. Michael Grimm (R-N.Y.), but it’s backed by members of both parties on the financial services panel. Emigrant Bank is owned by billionaire Howard Milstein, a bundler for President Barack Obama’s 2008 campaign and a major Empire State political player.

The bill has drawn no objections so far from bank regulators or the Obama administration, and proponents argue it is narrowly designed to help a community bank unfairly harmed by the controversial Dodd-Frank law.

But it is also an object lesson in how the rich and powerful — backed by a team of high-powered lobbyists — can get Congress to act on their issues, even as Capitol Hill wages partisan warfare on everything else.

The bill was first reported on by American Banker, a trade publication, but otherwise has received scant media attention.

Rep. Barney Frank (D-Mass.), ranking member of Financial Services and co-author of the 2010 financial reform law, complained recently that Republicans tried to bring the bill to the House floor without even a hearing. Frank hasn’t said which way he’ll vote, but the outspoken Massachusetts Democrat hasn’t objected to the measure so far.

“I was asked if we could do this in a way that would move quickly, and my answer was, ‘Yes, I’d like to move quickly, but I think it’s important that it be done in the light of day,’” Frank said at a sparsely attended hearing May 18 at which the Grimm bill was discussed. “Frankly, I think if it had not been done this way, someone might have drawn adverse inferences about the legislation, which aren’t justified.”

At issue is an arcane provision in the Dodd-Frank law setting out how much capital banks are required to have and in what form. Emigrant, the nation’s largest privately owned bank, currently has $10.5 billion in assets, according to its chief regulatory officer, Richard Wald.

But amid the 2008 financial crisis, Emigrant — at the time slightly larger than it currently is — borrowed $2.3 billion from the Federal Home Loan Bank of New York. Bank officials said the move was made out of an abundance of caution, but it put Emigrant beyond the $15 billion threshold in assets as of Dec. 31, 2009.

That triggered a provision of Dodd-Frank that will force Emigrant to “liquidate” some of its assets starting next year.

The Milsteins already have been forced to inject tens of millions of dollars into the bank over the past several years as the New York business and real estate markets soured, according to media reports.

So Congress is being asked to intervene.

Grimm’s bill would allow Emigrant to use an alternate date of March 31, 2010 — when its assets were under $15 billion — as a cutoff date, thus saving the bank $300 million in so-called Tier 1 capital.

That would enable Emigrant to make an additional $4.5 billion in loans, helping the New York economy, bank officials said.

Page:

CORRECTION: Corrected by: Hadas Gold @ 05/30/2012 11:19 PM
CORRECTION: The original version of this story incorrectly reported that the Milsteins would have to spend $300 million of their own money to liquidate Emigrant Bank assets if the House bill is not enacted.